Drawing on academic and policy literature and a series of consultations with experts, New Economics Foundation has set out six fundamental factors that should be taken into account when measuring and assessing system resilience.
These are: diversity, interconnectedness and network structure, financial system size, asset composition, liability composition, and complexity and transparency.
In a response to this news a spokesman for the BBA said: “There has been enormous change since the events of the last decade, with banks now holding seven times’ as much of the most important form of capital as they did in the run-up to the financial crisis.
“Banks are also spending billions of pounds implementing new rules to ring-fence their retail operations from their investment banking arms.
“The UK authorities are rightly regarded as being at the forefront in implementing new European rules that will ensure investors in banks - and not taxpayers - bear the cost of any future bank failure.”
NEF hopes the report will help regulators go further and explicitly define system resilience and measure and publish resilience indicators on a regular basis.
“Innovations in finance, such as the rise of peer-to-peer lending, could also significantly improve system resilience, but this depends on how the industry evolves – if P2P platforms are simply bought up by existing banks or their loans securitised, this could actually increase financial fragility,” said NEF.
“The Bank of England has made a good start in thinking about the financial system in a more holistic way with the creation of the Financial Policy Committee and increased focus on macroprudential policy.
“Only then can we talk more seriously about a stronger UK financial system that will ensure our economic stability in the face of any future crises.”
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